Recovering oil prices to ‘boost’ economies – GCC deficits reducing
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DUBAI, Jan 1: The deal to cut oil output could provide much required cushion to the oil market and Gulf economies in coming years, acording to Zawya report.
And, on the back of the production cut agreement, oil prices, which hit their lowest level in 12 years of sub-$30 per barrel levels in early 2016, recovered to near the keenly-watched $60 per barrel levels, and Bank of America Merill Lynch expects oil to hit $70 in the near term.
“The recent OPEC decision to cut production is positive for oil and we are entering 2017 with much more positives outlook for oil than we did in 2016,” Bader Al Ghanim, executive vice-president and head of Mena Asset Management, Global Investment House in Kuwait told Gulf News in an email.
This price recovery, along with other austerity measures, has resulted in bridging the budget deficits of the Gulf countries, at a time when the UAE is preparing for the Dubai Expo 2020, and as Saudi Arabia takes steps to diversify its non-oil sector.
“The budget deficits for all the 6 GCC countries have been reducing. Dubai is not dependent on oil, but even for Abu Dhabi the budget deficit will reduce, so with expenditure on non-oil sector continuing, overall our expectation is that GDP would grow marginally compared to 2016. The rise in oil prices and decreasing budget deficit will likely support the GDP growth,” Anita Yadav, head of fixed income research, Emirates NBD said.
In its recently announced budget, Saudi Arabia projected a narrower budget deficit of 198 billion riyals (Dh193.7 billion) in 2017 from 297 billion riyals in 2016 even as spending rises.
The world’s largest exporter of oil expects revenues to jump 46 per cent next year, hoping to collect 480 billion riyals in 2017 compared with 329 billion this year, the finance ministry said.
“We think that Saudi Arabia’s push to secure the OPEC and non-OPEC oil production cut deal was likely aimed at reducing the degree of fiscal retrenchment required after the painful experience in 2016,” Monica Malik, chief economist at Abu Dhabi Commercial Bank said.
Even in the budget of Dubai, which is less reliant on oil prices, it is expected the deficit will be lower at Dh2.5 billion, equivalent to 0.6 per cent of the GDP.
“The increase in oil prices may imply increased spending possibilities in the UAE [especially in Abu Dhabi], and less fiscal headwinds in KSA [Kingdom of Saudi Arabia] going forward. The pace of fiscal austerity will slow down. As a result, economic growth could pick up from 2018 onwards, though the planned cut in oil production in KSA should reduce real GDP growth for 2017,” Jaap Meijer, managing director and head of research, Arqaam Capital, said.
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